Econ 303 Test 3

At the optimum combination of two inputs

-the slopes of the isoquant and isocost curves are equal -costs are minimized for the production of a given output -the marginal rate of technical substitution equals the ratio of input prices

Which of the following is NOT an expression for the cost minimizing combination of inputs? A) MRTS=MPL(marginal product of labor)/(Marginal product of capital) B) MPL/w=MPK/r C) MRTS=w/r D)MPL/MPK=w/r

MRTS=MPL/MPK

in a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,

marginal cost is below average variable cost

the rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

marginal rate of technical substitution

A firm maximizes profit by operating at the level of output where

marginal revenue equals marginal cost

revenue is equal to

price times quantity

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the

rate at which the firm can replace capital with labor without changing the output rate

the demand curve facing a perfectly competitive firm is

the same as its average revenue curve and its marginal revenue curve

The law of diminishing returns assumes that

there is at least one fixed input

if we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called

An isoquant

Which is not valid: A) Rising marginal cost implies that average total cost is also rising B)When marginal cost is below average total cost, the latter is falling C) When marginal cost is above average variable cost, AVC is rising D) none of the above

Rising marginal cost implies that average total cost is also rising

The marginal product of an input is

The addition to total output due to the addition of the last unit of an input, holding all other inputs constant

With its current levels of input use a firms MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis) This implies

The marginal product of labor is 3 times the marginal product of capital

Which always increases as output increases?

Total cost and Variable cost

if capital and labor are all right angles to each other

capital and labor will be used in fixed productions

The marginal rate of technical substitution is equal to the

change in output/change in labor

the perfectly competitive firms marginal revenue curve is

horizontal

An isocost line reveals the

input combinations that can be purchased with a given outlay of funds

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because

the firms output is a small fraction of the entire industrys output

if the law of diminishing returns applies to labor than

the marginal product of labor must rise and then fall as employment rises

if the isoquants are straight lines then

the marginal rate of technical substitution of INPUTS is constant

because of the relationship between a perfectly competitive firms demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as

P=MC

When an isocost line is just tangent to an isoquant, we know that

output is being produced at minimum cost

The demand curve facing a perfectly competitive firm is

perfectly horizontal

if current output is less than the profit-maximizing output, then the next unit produced

will increase revenue more than it increases cost